BoJ Governor Haruhiko Kuroda noted in a speech that amid a persistent low interest rate environment, “possible changes in the risk appetite and risk profile of banks … is an issue” that BOJ is “highly attentive to”. And, in the short term, “as downward pressure on banks’ profits continues, we need to be mindful of the possible consequences of banks’ engagement in excessive risk taking.”
For banks with “abundant capital bases”, risk taking “provides financial support to firms’ production activities, thereby contributing to economic expansion”. However, without appropriate risk management measures, continued decline in profits would lead to to “insufficient capital bases”, and sharply higher credit costs. The stability of the financial system “could be threatened” in the event of a “large exogenous shock”. Based on October’s Financial System Report, the system has been maintaining stability on the whole.
On monetary, Kuroda repeated the same rhetoric that BoJ will continue with the current loose monetary policy. And, he’s confident that BoJ inflation will eventually move back to target.